Writer’s Claim

Reality

According to Arthur Berman, a respected energy consultant in Texas who has spent years studying the industry, Chesapeake and its lesser competitors resemble a Ponzi scheme, overhyping the promise of shale gas in an effort to recoup their huge investments in leases and drilling. When the wells don't pay off, the firms wind up scrambling to mask their financial troubles with convoluted off-book accounting methods.

The reality of at least 100 years’ worth of shale gas abundance has been supported by virtually every credible third-party expert, such as the U.S. Energy Information Administration, the Colorado School of Mines’ Potential Gas Committee, the Massachusetts Institute of Technology, Navigant Consulting and the largest energy companies in the world, among them being ExxonMobil, Shell, Chevron, ConocoPhillips, BP, Total, Statoil, CNOOC, Sinopec, Reliance, Repsol, BG, ENI and many others, not to mention every major independent in the U.S., Including Oxy, Anadarko, Apache, EOG, Devon, EnCana, Talisman and dozens more. The collective market cap of these energy leaders approaches $2 trillion – ask yourself: do I believe Rolling Stone and Arthur Berman or the world’s biggest and most successful energy companies?

For years, Mr. Berman has been underestimating natural gas reserves and the promise presented by the industry. Just take his ever changing position on the Haynesville Shale. In April 2009, Berman wrote that it was “difficult to imagine that the Haynesville Shale can become commercial.” Only two months later, in June, Berman had changed his tune, saying that “I now think that the Haynesville Shale reserve estimates that I presented previously were too low.” Still, in a 2010 article, Berman suggested the Haynesville numbers were “disappointing.” In March 2011, the Haynesville became the top producing natural gas field in the U.S., and now stands among the top ten producing fields in the entire world.

As far as accounting practices, Chesapeake follows full-cost accounting rules to the letter and routinely have our filings reviewed by the U.S. Securities and Exchange Commission, as is typical for any public company of our size. The same holds true for the rest of our industry – our reserve accounting techniques are strong and have stood the test of time for decades.

Like generations of energy kingpins before him, it would seem, McClendon's primary goal is not to solve America's energy problems, but to build a pipeline directly from your wallet into his.

Over the past three years alone, Chesapeake has distributed over $14 billion in payments to lease and royalty owners throughout the country.

The positive impact from natural gas goes well beyond the landowner. Chesapeake and its partners, for example, have invested almost $30 billion in the search for clean, abundant and affordable natural gas in just the past three years. As a result of Chesapeake's investments and those of others in our industry, Americans enjoy the cheapest electricity and natural gas prices in the industrialized world. And to the extent there is an economic recovery underway in the U.S., our company and our industry have been among the most important drivers of that recovery.

According to the U.S. Federal Reserve, natural gas prices, which are at a 10-year low this month, could save U.S. consumers almost $20 billion on home energy bills this year. Total savings to the U.S. economy from low natural gas prices compared to current natural gas prices in Europe and Asia, will likely exceed $250 billion in 2012 – that’s more than a $600 million daily stimulus to the U.S. economy!

Additionally, low natural gas prices have led to a renaissance in U.S. manufacturing jobs. A recent report from PricewaterhouseCoopers highlighted how affordable, domestic supplies of natural gas will save U.S. manufacturers more than $11 billion per year over the next decade, in addition to creating a million new jobs during that same period.

This affordable energy supply is also projected to increase disposable income for each household in the U.S. by as much as $2,000 per year.

The Oscar-nominated film Gasland exposed the dark underbelly of fracking, interviewing residents who could literally light their faucets on fire, thanks to the gas that had contaminated their drinking water.

Many aspects of Gasland have been repeatedly and thoroughly debunked by credible third party experts, but perhaps no area of the film has proven to be more disingenuous than the now infamous faucet lighting scene. After all, according to the Colorado Oil & Gas Conservation Commission (COGCC), “Dissolved methane in well water appears to be biogenic [naturally occurring] in origin. … There are no indications of oil & gas related impacts to water well.”

[N]ew studies suggest that because of fugitive emissions of methane from wellheads and pipelines, natural gas may actually be no better than coal when it comes to global warming.

The reporter is referring to two papers produced by Cornell University Professors Robert Howarth and Anthony Ingraffea. Chesapeake shared numerous rebukes of the studies, including Carnegie Mellon University, the U.S. Department of Energy and one from a fellow Cornell Professor, Larry Cathles who concluded that the methane leakage rate promoted by the study was “unreasonably large and misleading.”

"The more land they acquire, the more capital they have to spend upfront," says Deborah Rogers, a former investment banker who learned just how precarious Chesapeake's business model was when she looked into the firm's financial statements after the company sunk wells near her property in Texas.

Rolling Stone refers to Deborah Rogers as a “former investment banker,” conveniently failing to mention that Ms. Rogers is also an active “steering committee member” of the Oil and Gas Accountability Project (OGAP), an activist group that considers natural gas to be a “filthy energy” source, and has vigorously worked in New York and Pennsylvania to institute bans on hydraulic fracturing.

He didn't point out any errors by the scientists or question their methodology. Instead, he went after their character, dismissing the [Duke] study as "more political science than physical science" and accusing them of having a bias against fossil fuels. "These guys," he tells me, "have invested their lives in the view that climate change is occurring, that fossil fuels are bad, and that natural gas is a fossil fuel, and therefore it's bad."

When I ask Avner Vengosh, a geochemistry professor who served as a lead author of the study, about McClendon's letter, he laughs lightly. "I have no agenda," he says. "I am a scientist. I report what the evidence I find tells me to report." He and his colleagues visited Chesapeake's headquarters in Oklahoma a few weeks before the study was finished and shared their results with the company. They also offered to consider any data that Chesapeake might have that would challenge their results. "They offered us nothing," says one scientist who attended the meeting.

Remarkably the reporter has clearly ignored a large portion of the letter in question. After all, the second paragraph of Aubrey’s letter clearly shows the fallacy in the idea that the authors visited campus, and Chesapeake “offered us nothing” to challenge the report: “Chesapeake disputes the findings of Duke’s Nicholas School’s study entitled Methane Contamination of Drinking Water Accompanying Gas-Well Drilling and Hydraulic Fracturing. In April 2011, the authors of the study met with Chesapeake geologists, petrophysicists, environmental scientists and engineers and were shown summaries of over 7,000 data sets we have collected over the last few years in Pennsylvania which showed measureable methane in 22% of the water sources sampled prior to any of our drilling operations occurring, directly refuting the contents of the study.” No wonder the “scientist” quoted spoke anonymously.

Furthermore, the author chose to ignore the many respected voices who have spoken out against the Duke study including PA DEP Secretary Michael Krancer who believes the study was, in a word, biased.

“The bottom line is it was biased science from biased researchers,” Krancer says, addressing a luncheon audience during a recent conference in Pittsburgh.

Tom Darrah, a Duke geologist who has examined Vargson's well for a new study, finds that difficult to square with the facts. "Anyone who has seen the data I have and thinks this much methane in her well is from natural sources has their head in the sand," he says.

A comparison of samples taken before and after drilling indicate the quality of the Vargson water to be virtually unchanged. The Vargson’s residential water well was equipped with a venting cap predating our operations. We have advised the Vargsons to clean and maintain their existing vent cap to better accommodate its intended function of venting the preexisting methane in their water well.

Last April, a Chesapeake well in Bradford County suffered a massive blowout. It was the onshore, natural gas version of what happened to BP in the Gulf two years ago: A wellhead flange failed, and toxic water gushed uncontrollably from the well for several days before workers were able to bring it under control. Seven families were evacuated from their homes as 10,000 gallons of fracking fluid spilled into surrounding pastures and streams. Pennsylvania fined the company $250,000 – the highest penalty allowed under state law.

To compare this incident to the BP spill is both misleading and irresponsible. An independent report by SAIC concluded that: “Overall, few impacts were realized due to the release of fluids from the ATGAS well control incident. Those that did occur were localized, of short duration, and were confined to surface waters and shallow soils surrounding this site. There were no ecological impacts to Towanda Creek or the unnamed tributary; nor were any impacts noted to nearby or regional water wells or springs.”

The PADEP fine for the Atgas well control event in Bradford County was $123,000 and $67,000 in expense reimbursement. In its press release, the DEP noted: “Fluids from the well mixed with rainwater and entered a nearby unnamed tributary to Towanda Creek and Towanda Creek itself. On April 20, DEP detected levels of total dissolved solids, chlorides and barium that were higher than background levels at the mouth of the tributary, where it enters Towanda Creek. Subsequent testing further downstream and on the following days showed these levels returned to normal background levels.”

It's also impossible to know what chemicals are flowing out of the wells, or how toxic they are, because companies like Chesapeake are not required to disclose the compounds they use in fracking operations.

We don't know the chemicals that are involved," Vikas Kapil, chief medical officer at the National Center for Environmental Health, admitted at a recent conference. "We don't have a great handle on the toxicology of fracking chemicals."

This claim is directly rebutted by Pennsylvania DEP: “Drilling companies must disclose the names of all chemicals to be stored and used at a drilling site … These plans contain copies of material safety data sheets for all chemicals … This information is on file with DEP and is available to landowners, local governments and emergency responders.” In addition, Chesapeake and other operators voluntarily disclose hydraulic fracturing components to a publicly available chemical disclosure registry at fracfocus.org. The author was told this repeatedly while meeting with Chesapeake.